In Washington, Friends of Fannie, Freddie Are Multiplying

Investors in Fannie Mae and Freddie Mac appear to be building a more vocal and organized support network in Washington weeks ahead of a key Senate vote to consider legislation that would overhaul the companies.

On Monday, a new tax-exempt group calling itself the Coalition for Mortgage Security said it would campaign for legislation that protects the rights of investors in the bailed-out mortgage-finance companies. The group echoed the position of many hedge funds and other investors that are suing the government over its oversight of the companies, arguing that changes to their government bailout agreements violated property rights.

The new website for the Coalition for Mortgage Security.

The group, which isn’t identifying any of its members or donors, uses language on its website that is strikingly similar to the Obama administration and Senate lawmakers who are advancing a bipartisan bill to a committee vote later this month. The group says it wants a bill that “responsibly winds down Fannie Mae and Freddie Mac.”

But that language obscures a fundamental disagreement: the group doesn’t support the Senate bill, offered last month by Sens. Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho), which would enshrine the Obama administration’s 2012 policy to prevent the firms from recapitalizing themselves.

The administration began requiring the firms to send all of their profits to the Treasury as dividend payments last year. Investors, including prominent hedge funds and institutional investors, that began buying the firms’ stock after many others left it for dead in 2008 say the changes amounted to illegal self-dealing between the Treasury and the firms’ federal regulator. The Treasury is fending off more than a dozen lawsuits.

The new coalition describes itself as a “bipartisan, grassroots organization.” It is organized under section 501(c)4 of the tax code, meaning it is tax exempt so long as it is primarily engaged in promoting social welfare and doesn’t have to disclose its donors. Such vehicles have become a popular way for special interests to spend large sums on political campaigns with fewer disclosures.

The group says it has made a “significant” digital advertising purchase in media outlets this week. It has hired SKDKnickerbocker, the public relations firm co-founded by Anita Dunn, a former top White House communications official, and has named as its director Ken Blackwell, a Republican politician who served as Ohio’s state treasurer and secretary of state.

In an interview, Mr. Blackwell wouldn’t discuss the group’s members, including potential support from large investors in Fannie and Freddie. “I’ve never been known to carry anybody’s water but the water of home buyers and responsible players who understand the importance of homeownership in our country,” he said.

Mr. Blackwell said the group didn’t support the Johnson-Crapo bill, which the Senate Banking Committee is set to vote on as soon as April 29.

”We have an obligation to work with members of Congress to come up with an alternative,” he said. Of the broader debate to overhaul the nation’s $10 trillion mortgage market, he added, “this is not going to be a 50-yard sprint. This is going to be a marathon.”

Last week, a conservative seniors group, the 60 Plus Association, began a $1.6 million television and radio advertising campaign against the Johnson-Crapo bill, targeting seven senators that have voiced support for a housing-finance overhaul. That group also hasn’t disclosed its support and isn’t required to do so.

Meanwhile, two other groups have sprung forward to defend shareholders. One is led by Ralph Nader, a longtime critic and investor in the companies, and is called Shareholder Respect. A separate group, called Investors Unite, is being led by Tim Pagliara, chief executive officer of CapWealth Advisors, a wealth management firm that invested in Fannie and Freddie shares after their collapse. Those groups are organizing meetings on Capitol Hill this week between individual shareholders and lawmakers.

Fannie and Freddie, which don’t make loans but instead buy them from lenders, were taken over by the U.S. during the 2008 financial crisis as losses soared. As the housing market has rebounded and reversed losses, the firms have become very profitable. The companies have sent nearly $203 billion to the Treasury as dividend payments after requiring $188 billion in infusions. Those payments don’t reduce the $188 billion that the government is owed.

What do the companies themselves think about all of this? It’s hard to tell because executives haven’t been allowed to lobby or do anything else that could be perceived as political persuasion by their federal regulator.

The chief executives of both companies have said they hope Congress will address the fate of their companies soon—being in limbo has created all sorts of staff recruitment and retention issues—but they’ve otherwise avoided directly commenting on specific legal or policy issues.